Recently back from a trip to the Middle East, Casey Research
Energy Division Chief Investment Strategist Marin Katusa shares
some of his best energy investment opportunities. In this
exclusive interview with
The Energy Report,
he explains why this is a good time to pick up uranium and
geothermal stocks.

The Energy Report:
As the Chief Investment Strategist for the Energy Division
of Casey Research, you follow the whole range of energy segments
and investments for your company. There have been quite a few
changes on both the political and economic fronts since you spoke
with
The Energy Report
last
November
. Can you bring us up to date on opportunities in your coverage
area-petroleum, natural gas, uranium and geothermal?

Marin Katusa:
When looking at the energy sector, one must start with
petroleum, as that alone is a very large sector. Brent Crude is
currently trading at a premium to WTI (West Texas Intermediate),
mainly because of a political instability premium based on what's
happening in the Middle East. Speculators have propped up the
prices because of the amount of demand required from Europe,
which comes from the Middle East. The WTI price has lagged as the
differentials increased since February because of the Middle East
turmoil.

That said, in the last three weeks you've seen a significant
pullback on the petroleum sector market-wide, in the spot price
of the oil and equities in both big caps and the juniors. The
main reasons are the weak economy and the U.S. Energy Information
Administration report stating, "$100+ per barrel (bbl.) oil is
just too much of a burden in this fragile economy." That brings
out the speculators, which comprises a 20%-25% premium in
petroleum. Another reason for a big drop in the price of oil is
that the United States is leading an international effort to
release 60 million barrels (MMbbl.) of crude reserves to world
markets.

TER:
Natural gas is a little different story, isn't it?

MK:
Natural gas is a very localized market. If you look at
North America, because of the success of the unconventional
technologies, mainly shale fracking, the companies are a victim
of their own success. Because these unconventional explorers have
been so successful in finding unconventional sources of gas,
there is a glut of gas. But that, too, shall pass as the cure for
low prices is low prices. It's just going to take some time-more
time than most investors are willing to wait. We wrote a report a
couple of years ago called, "The Hidden U.S. Supply of Gas." It
shined a light on the thousands of uncompleted wells that are
drilled, but not completed and could be tapped into the pipeline
structure in 72 hours if they were viable. You're going to see
sideways gas for the next 6-12 months in North America, and over
the next 3 months you could see petroleum sideways to down.

TER:
How about uranium in light of Fukushima?

MK:
The uranium sector had a big fall, obviously, since the
Fukushima disaster. Ironically, mainly by fluke, about 2.5 weeks
before Fukushima, in our newsletter and on TV, we came out with a
"take profits" opinion on the uranium sector mainly because we
went very bullish on it eight months before. I think when this
whole cloud has settled down, you're going to see some really
interesting buying opportunities in a few very select uranium
companies.

The uranium companies you want to stick with are the lowest
cost producers with no debt and explorers with tangible, real
deposits that are very high-grade in areas of developed
infrastructure (a pro-uranium mining culture helps) with defined
resources within the NI 43-101 standard that look like take-out
targets. You want to stay away from the early stage exploration
projects in areas that lack infrastructure. The smart money is
staying away from those types of projects. In my opinion, those
projects are going to go sideways to down because explorers will
always need to raise money to explore.

It's a fact that the U.S. is the largest consumer of uranium,
but the country only produces about 8% of that domestically. It
purchases the rest. So there's still plenty of existing demand.
The uranium story isn't dead, but an investor has to be much more
careful in choosing investments. I'd also stay away from thorium.
It's shocking how many emails I get about thorium. We've written
about all the reasons to stay away from thorium quite a bit in
our
Casey Energy Report.

Back to uranium, you've got Germany, where Chancellor Angela
Merkel just said, "We're going away from nuclear power" and the
Japanese are saying the same. But you've got the RISC
countries-Russia, India, South Korea, and China-and they're going
nowhere. They're going to stick with the uranium demand that they
have, and it will increase (they will be building nuclear plants
fueled with uranium, not thorium).

TER:
And what about geothermal?

MK:
Now, the geothermals have taken a significant hit back,
even though the current PPAs (power purchase agreements) provide
significant profits. The actual public companies have taken a big
fall following the
Ram Power Corp. (TSX:RPG)
disaster where they missed their wells and had cost
overruns. Geothermal is currently a contrarian investment
opportunity where these geothermal companies are trading at a
fraction of what they were a year ago. I just wrote an article
called "The Valley of Darkness" comparing the current geothermal
sector to the copper sector in late 2008.

TER:
So you think oil prices will be sideways in the next year
because the market can't sustain these kinds of prices. Is that
correct?

MK:
If the Arab Spring does shift-and the key here is whether
Saudi Arabia falls-you will see $150-$200/bbl. oil overnight. If
something were to happen to the flow from the massive Ghawar oil
field in Saudi Arabia, that would result in the single largest
increase in oil prices the world has ever seen. Otherwise, oil is
sideways to down. My point is that we really are on the edge of
chaos. Saudi Arabia is very important to keeping oil below
$150/bbl.

TER:
You mentioned the possibility of opening up fracked natural
gas wells. Is that going to go crazy any time soon?

MK:
A moratorium exists on a lot of new shale gas wells due to
concerns about water supplies. We did a report a few years ago
where we talked about how an unconventional well uses between 2
and 5 million gallons of water, of that you get back roughly
half.
The Marcellus Shale
, the
Utica Shale
, the
Paris Basin
-all of these basins have moratoriums on them because some people
are worried about polluting the water table. The fracking occurs
many thousands of meters below the water table so I think it is a
misplaced fear, but you're dealing with politicians and NGO
groups, so you aren't really dealing with facts or science. If
these groups are successful, further moratoriums could be
imposed, but it would be a crying shame if these moratoriums
extended into the
Haynesville Shale
in Louisiana or the
Eagle Ford Shale
in Texas. I don't suspect we will see this happen, but if
it did, you would see a significant pop in the price of domestic
natural gas.

TER:
Going to nuclear now, despite the Fukushima disaster,
nuclear power is here to stay. How much effect is the current
controversy over nuclear safety going to have on new plant
development currently in the works?

MK:
Global demand will be affected by countries such as Germany
and Japan. They still have existing plants; remember they're
going to be operating until 2022, in the case of Germany. A lot
of this is political lip service; they're giving the people what
they want to hear now. What are the Germans going to replace that
production with?

TER:
Well, maybe they think they can do it with solar?

MK:
I don't think so. They're importing nuclear energy across
the border from France. So, this is just political lip service.
The politicians just want to stay in power long enough to get
their juicy pensions. They don't care about-or even if they did
care, they aren't able to find-real solutions, that is why they
are politicians. I believe that before 2022 rolls around, the
Germans will rethink their nuclear position. But remember, you
have more than 20 nuclear plants being built in China; you've got
South Korea, Russia and India looking to develop. So let's just
imagine that Germany and Japan do close down, whatever they shut
down is going to be replaced by growth in other
countries.

TER:
Who will benefit from continued demand for uranium? Which
uranium stocks do you think are going to continue to be
attractive under the current scenarios?

MK:
Let's start with
Uranium Energy Corp (NYSE.A:UEC)
, one of the lowest cost producers in the world. It has been a
big win for our subscribers a few times, and it is a new producer
led by Amir Adnani, who is in our "Ten bagger" club-a club for
companies that delivered 1000+% gains for our
subscribers.

I also like
Denison Mines Corp. (TSX:DML; NYSE.A:DNN)
a lot. It has production in the U.S. and access to a mill
in the Athabasca Basin, which hosts one of the highest grade
uranium projects on the planet. They made a major discovery at
their Phoenix deposit-a very, very high-grade deposit. So, that's
a blend of low-cost production and high-grade deposits. We have a
lot of technical research on both of these companies on our
website at
www.caseyresearch.com
, as we've been to their projects, and our subscribers have
done well on both of these companies.

If you want a higher risk story, we like
Hathor Exploration Ltd. (TSX.V:HAT)
. We have had that in our portfolio for many years and they've
made a great discovery of a high-grade deposit. So those are the
three that we have in our
Casey Energy Report
that we follow.

TER:
Any new developments with those companies?

MK:
Uranium Energy Corp. has hit the numbers that they gave the
public regarding production costs and are actually lower than
originally stated-less than $18/lb. The company is growing
production to 1 Mlb. annually. It's very important to know that
yes, the spot price of uranium has taken a big hit, but the spot
market price is still north of $50/lb., and the long term price
trades north of $70/lb. The netback-the differential between what
the selling price and the production costs-are still very
impressive profits.

TER:
Any other juniors you think have merit at this point?

MK:
In our
Energy Confidential,
we really like
Fission Energy Corp. (TSX.V:FIS; OTCQX:FSSIF)
, which is adjacent to the Hathor deposit. The play there is that
we believe that Hathor will buy out Fission so that they can have
a large consolidated resource. At that point, we think Hathor
will have over 60 Mlb. of very high-grade uranium. From there we
believe the play would be that Denison will buy out the combined
Hathor and Fission company.

The ultimate end game in the Athabasca Basin, we believe,
would involve
BHP Billiton Ltd. (NYSE:BHP; OTCPK:BHPLF)
. There's good potential that they want access into the Athabasca
Basin, and the only way that they can do that would be through
access to a mill. It's very difficult to get the permits to build
a mill in the Athabasca Basin. Either it buys out
Cameco Corp. (TSX:CCO; NYSE:CCJ)
, which is not going to happen; or the big French uranium
company
AREVA (PAR:CEI)
, sells an interest, which is not going to happen; or it buys
Denison Mines, which owns a percentage of an operating
mill.

So the key to the play there for the juniors like Hathor and
Fission is to be bought out by a larger company. That's why we
like Fission, it has good management that discovered a very good
project.

TER:
The geothermal sector is obviously quite a bit smaller than
the other energy sectors, but people are taking another look
there also. There seems to be a lot of potential out there, but
it's not so easy to capitalize on it. What's going on with the
companies that you follow there?

MK:
In our
Energy Opportunities Newsletter,
we follow
Ormat Technologies Inc. (
ORA
)
, the world's largest, pure-play geothermal company. If you want
lower risk, you probably want to stick with Ormat. If you've got
an appetite for a higher risk junior, we think
Alterra Power Corp. (TSX:AXY)
, which is Ross Beaty's deal, is a good play. It's the old Magma
Energy merged with Plutonic Power Corp. Alterra just received
$70M+ cash from the sale of a portion of their Iceland asset.
They're very sound; they make money. It's one of the few junior
companies that can stay afloat because it actually makes money.
It has a sustaining business and Ross Beaty has done a great job
building that. Don't ever count out Ross Beaty, the guy is a
legend. In time, he will build AXY into a winner. Investors have
to be patient; the geothermal sector right now isn't the place
for fast money.

Ram Power seems to be fixing itself up here. It fell on its
knees when founder and President Hezy Ram left after missing
targets and cost overruns. The company has restructured the
management, refinanced it and so far the results look promising.
It still has to build up its San Jacinto plant and the geysers
seem to be going on track. So, time will tell with Ram. It's been
very disappointing, but so far, it seems like they're headed in
the right direction.

Nevada Geothermal Power Inc. (TSX.V:NGP;
OTCBB:NGLPF)
has built the largest geothermal plant in the U.S. in the
last decade. The company just bought out some Iceland assets in
California. The geysers and the joint venture with Ormat on the
Crump Geyser property in Oregon is moving as expected. So, all of
these companies are doing the right things now, except the market
is not reflecting it because no one really cares about it. It's
the unloved energy sector. The companies are cheap, but their
time will come. We don't know when it will happen, but because it
is such a small sector, there are only a handful of companies, so
when it does get attention these stocks are going to trade up
multiples from where they are today.

TER:
Years ago I visited the Geysers geothermal production
facilities northeast of San Francisco. Who owns that now?

MK:
I believe you are talking about the facilities about 100m
northeast of San Francisco that are owned by
Calpine Corp. (
CPN
)
. The geysers are the largest group of geothermal plants in the
world and Calpine has some good assets and production, but
geothermal production is a very small percentage of Calpine's
overall electricity production. Their main electricity plants are
natural gas. It's a very large company; they've done very well,
and they've got a good portfolio of geothermal assets.

TER:
So, that's not a clean geothermal play by any means.

MK:
No, and that's why we've avoided Calpine. If you want
exposure to the geothermal sector, that's not the one you want to
be in.

TER:
Are there any other companies you would like to bring up at
this point that you think our readers should be looking at?

MK:
I think in general you want to stick with management teams
that are proven; they've done it before; they're heavily invested
in the companies themselves and they have a focus factor. One of
my favorite companies right now is a company called
East West Petroleum Corp. (TSX.V:EW)
. The company just signed a massive deal in Romania with a large
energy company called NIS, which is more than half owned by the
Russian gas company Gazprom. NIS is going to drill 12 wells on
their unconventional gas assets in Romania, which is over US$50M
worth of exploration on EW 100%-owned assets over the next 24
months. The company also signed a deal in India with three of the
four largest Indian energy companies and has a deal in the Middle
East with one of the largest independent oil producers, Kuwait
Energy Corp. You want to stick with a company whose management
team can attract a major company and use the major company's
money to develop the assets that they own. It's kind of like the
joint venture model in mining, the OPM, where you use other
people's money. East West is a company we really like, and own a
lot of shares.

Another one we really like is
Niko Resources Ltd. (
NKO
)
. It's a much larger company, but we believe in the next 12-18
months they're going to have a lot of news coming out on their
drill programs. In this market, it's time to pick your favorite
stocks and be patient; put in your stink bids and see if you get
a hit. Unfortunately, the company has recently gotten itself into
some trouble that will cost it about CASD$10M-CAD$12M in fines.
That's very disappointing, but the assets sure look good.

TER:
Yes, it's summertime and nobody cares about the market.

MK:
It's also the time to be accumulating your favorite stocks
on sale. Buy on fear; sell on greed.

TER:
Do you have any other thoughts you would like to leave with
our readers?

MK:
I think the reality of the sector is, regardless of what
happens with the equities in the near term, if you're patient,
the solid companies will grow their assets and either produce
higher cash flows or get bought out by a major who needs to
replace reserves. So, just because the market right now has a lot
of negative sentiment, we look at this as a buying opportunity to
pick up more shares of your favorite companies. They're on sale
right now. Fortune favors the bold. Just make sure you do your
homework and control your emotions. Don't let the fluctuations in
the stock price take a toll in your personal life. Don't invest
more than you can afford to lose. Juniors stocks are risky, but
if invested in the right management teams, the risk is definitely
worth the potential rewards.

TER:
That's certainly true. Thanks for taking time out of your
busy schedule to talk with us today. We appreciate your thoughts
and input and hopefully our readers will also find them
useful.

MK:
Thanks for the opportunity.

Investment Analyst
Marin Katusa
is the senior editor of
Casey's Energy Report
, Casey's Energy Opportunities and Casey's Energy Confidential.
He left a successful teaching career to pursue what has proven an
equally successful-and far more lucrative-career analyzing and
investing in junior resource companies. With a stock pick record
of 19 winners in a row-a 100% success rate last year-Marin's
insightful research has made his subscribers a great deal of
money. Using his advanced mathematical skills, he created a
diagnostic resource market tool that analyzes and compares
hundreds of investment variables. Through his own investments and
his work with the Casey team, Marin has established a network of
relationships with many of the key players in the junior resource
sector in Vancouver. In addition, he is a member of the Vancouver
Angel Forum, where he and his colleagues evaluate early seed
investment opportunities. Marin also manages a portfolio of
international real estate projects.

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DISCLOSURE:
1) Zig Lambo of
The Energy Report
conducted this interview. He personally and/or his family
own shares of the following companies mentioned in this
interview: None.
2) The following companies mentioned in the interview are
sponsors of
The Energy Report:
Uranium Energy Corp., Fission Energy Corp., Nevada
Geothermal Power Inc. and Ram Power Corp.
3) Marin Katusa: I personally and/or my family own shares of the
following companies mentioned in this interview: East West
Petroleum and Nevada Geothermal. I personally and/or my family am
paid by the following companies mentioned in this interview:
Casey Research.

The Energy Report does not render general or specific
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